My book, Low Fee Socially Responsible Investing: Investing in your worldview on your terms, presents the story of how existing socially responsible investment funds do not yet treat political accountability on the same level as well-established screens such as alcohol, tobacco, environmental issues and executive pay (see the www.ussif.org mutual fund screening and advocacy tables). Clearly, significant groups of investors are concerned with the growing amount of corporate money used to fund political campaigns and lobbying, especially in the aftermath of the Supreme Court's Citizens United ruling. In addition to investors with secular concerns over excesses associated with money in politics, this screen may be of interest to faith-based investors. Several faiths (e.g. Baha’i, Jehovah's Witnesses and Unitarian Universalism) share a principle of nonpartisanship or non-involvement in partisan politics.
In 2011, research presented in the CPA-Zicklin Index, posted on the Center for Political Accountability web site, indicated that only two large publicly owned US corporations avoid making corporate political contributions. In the 2012 update, two more corporations moved in a nonpartisan direction. Significant progress noted in a wide range of political disclosure metrics for a large number of US corporations indicate that this behavior can be influenced by more public attention. The goal of this portfolio is to further increase the intensity of this attention (i.e. money talks). The portfolio objective is to present a transparent screening formula that favors investment in corporations with best-in-class behavior in the area of political accountability, while still maintaining adherence to good investment practices such as diversification, attention to company financial stability and low investment fees.
It is assumed that investor activism will be of particular interest to those already familiar with socially responsible investing (SRI). The proposed portfolio, therefore, filters out firms that are not included in any of the broad SRI indices. For investors interested only in political accountability, one could look at the general SRI screening as a helpful tool to participate in the momentum that this category of investment has demonstrated (i.e. more bang for the buck by combining the two filters).
US-listed stocks that are already included on a major social responsibility index.
Company should be in top half of the CPA-Zicklin Index (relatively best-in-class for political accountability). Note that companies that do not make political contributions and encourage their trade associations to act in a similar manner are deemed to be at the top of the list.
Rank companies in descending order using a financial stability metric (e.g. Morningstar® rating, S&P credit rating).
Include between 20 and 50 stocks and equally weight the allocation.
Low Fee Implementation Options
Do-it-yourself (DIY) or DIY with some advisor assistance
Depending upon an investor's worldview, and experience and access to portfolio evaluation tools, one option would be to use the stated investment criteria to construct and test a portfolio of holdings that result from following the investment criteria identified. Portfolio back-testing can be helpful in identifying the historical performance characteristics and volatility. Investment platforms such as Folio Investing and Motif Investing have fee structures that make it practical to build a portfolio of individual stocks and invest in fractional shares as needed, for a relatively low fee. Discount brokerage platforms which require whole-number share purchases and have trading costs based on the number of stocks in the portfolio may require that a significant amount of investment be made to keep the investment cost in alignment with a low fee philosophy.
As of November 2012, Motif Investing has a ready-made portfolio named "Socially Responsible" that uses the investment criteria noted. This Motif (portfolio of stocks) can be purchased for $9.95 per trade. The trading mechanism is similar to buying an individual stock or exchange traded fund (i.e. essentially real time versus end-of-the day pricing).
This information is not intended to provide specific investment, tax or legal advice. You should consult appropriate professional help for your investing decisions. The site sponsor may own securities that would be identified using the screening tools noted.
Any references to investment performance are historical in nature. Past performance does not guarantee future results, and all investments entail risk of loss, including the potential for loss of principal. Each investor is unique: factors including his or her investment experience, tax situation, time horizon, tolerance for risk and fluctuations in value should be weighed carefully before making an investment decision.
The views expressed are solely those of the site sponsor and do not necessarily represent the views of any organization that the author is associated with. The site sponsor does not receive any fees for mention of any source of information or service provider.